7/26/2010 @ 12:35PM

The Truth About June Employment Numbers

As Congress acts again to extend unemployment benefits to the long-term jobless, it is time to take a careful look at employment and unemployment in America. Democrats are fully in the spin zone on jobs. Despite the spin, there are a number of secrets buried in the jobs numbers that Obama and Congressional Democrats don’t want us to focus on as we enter the mid-term election season.

Congressmen are making their re-election pitches that they have won unemployment benefits for jobless constituents in their districts. At the same time, the administration tells us that the June job numbers show that the economy is recovering steadily with unemployment down slightly to 9.5%. Obama made the point that June was the “sixth straight month of private-sector job growth,” and assured us that “we are heading in the right direction.” Sounds great, doesn’t it?

All this spin is supposed to make us respond positively: “Wow! Happy days are here again. The recovery must be really gaining steam.” And we are supposed to conclude that maybe we don’t need to throw out the Democrats in the mid-term elections after all.

The June jobs numbers show unemployment falling .2% to 9.5%. This may seem like an improvement until you realize that this decrease is almost all caused by an additional 611,000 Americans giving up on finding jobs last month. When people stop looking for work, unemployment percentages go down even though the economy has not improved and may even have gotten worse.

Further, the job numbers also don’t tell you that government is virtually the only industry in America that has been recession-proof. Not only is unemployment the lowest in the government sector of all industry sectors in America, federal civilian employees make a stunning 30% to 40% more in total compensation than similarly skilled private workers, according to the Heritage Foundation. Plus, federal workers enjoy almost total job security no matter how poor their performance is. Similarly, state and local government workers had incomes that were on average 34% higher and benefits that were 70% more costly when compared to private-sector workers in 2009. So much for the sacrifices of public service.

Surely, this difference in wages can’t be because government workers are so much more productive and efficient than private-sector workers? More likely, it is because government employees are now the most powerful special interest group in America, and they have been very effective at preserving their advantage.

It is important to remember that unlike private-sector workers, government workers don’t generally make anything. They don’t make the economic pie bigger nor create wealth. Rather, the government just takes a bigger piece of the pie, leaving less for the private sector.

Since the recession began at the end of 2007 the private sector has shed almost 8 million jobs. During the same period, the federal governments’ civilian payroll has actually increased by 240,000 to 2.2 million workers, excluding census and postal workers. This leaves a smaller private sector supporting an ever larger public sector. And that can’t be good for our recovery.

But what about states and municipalities that must balance their budgets by law? State and local governments employ about 19.7 million workers and actually added an astonishing 110,000 net jobs from the beginning of the recession in December 2007 through July 2009, according to a Rockefeller Institute report. How is it possible, you may ask, to increase state and local payrolls when tax revenues are down? Well, the federal government has been bailing out state and local governments to avoid state and local public-sector job cuts and to temporarily keep unemployment figures from increasing further. Additional “emergency” bailouts to prevent states and local municipalities from cutting their bloated payrolls are now pending.

Increasing the public sector at the expense of the private sector has helped the Obama administration to keep unemployment rates artificially lower, but it can’t work forever. Government has been a growth industry for the last few years. But interest payments on our national debt will soon crowd out other spending, and there will have to be cuts to the government payroll and to state and local subsidies. Even the spendthrift Congress is afraid to support new spending because of the growing public focus on the growing national debt. With the national debt looming, continuing to support government growth or even keeping the size of government constant will inevitably lead to a Greek-style financial meltdown.

We need to solve this problem before it bankrupts our nation. Privatizing many federal functions would address this problem quickly by letting the market determine what job functions are essential and set salaries and benefits.

And so, for the sake of our nation, future job creation will have to come from the private sector–even as that sector struggles with higher taxes, increased health care costs and other anti-business policies brought by the Congress and the Obama administration. We need to ignore the “noise” of rosy job numbers and focus on what really counts: “right-sizing” the public sector so that we can grow as a nation again.

Mallory Factor is a member of the Council of Foreign Relations, chair of the Joint Chiefs of Staff Economic Roundtable and cofounder of The Monday Meeting, an influential meeting of economic conservatives, journalists and corporate leaders in New York City. He can be reached at Mallory.Factor@malloryfactor.com.